Halfords Group Plc · LSE:HFD

Halfords — H1 FY2010 Earnings Presentation

43 slides from Halfords's earnings presentation, Nov 19, 2009

1. Slide 1: Interim Results

   Interim Results 26 Weeks to 2 October 2009 City Presentation Centre 19 November 2009

2. Slide 2: Nick Wharton, Finance Director

   Nick Wharton Finance Director

3. Slide 3: Financial Highlights

   Financial Highlights Strong Delivery Drives Revenue, Earnings and Dividend Growth  Sales £425.1m +3.8%, like-for-like sales +1.7%  Gross margin 190 bps increase year-on-year  Operating profit £62.0m +12.9%  Profit before tax £60.9m +24.0%  Basic EPS 20.6 pence +23.4%  Operating cash flow £112.

4. Slide 4: Sales Growth and Margin %

   Sales Growth and Margin % FY10 FY09 H1 H1 % % Underlying like-for-like sales growth +1.1 -0.5 Easter adjustment +0.6 -0.6 Like-for-like sales growth +1.7 -1.1 Impact of restating currency +0.4 +0.6 Net new space +1.7 +2.7 Total sales growth +3.8 +2.2 FY10 FY09 H1 H1 H2 Full Year Like-for-like compar

5. Slide 5: Net Operating Expenses

   Net Operating Expenses Cost Saving Initiatives On Track, Underlying Cost Growth 0.9%  Operating efficiencies mitigate 6.0% Year on Year Operating Cost Progression underlying cost inflation 5.0% 1.8% 0.3% 4.0%  Incentive costs reflect increased 3.0% 2.0% 5.8% 0.9% year-on-year profitability 2.0% -1

6. Slide 6: Profit and Loss Account

   Profit and Loss Account FY10 FY09 H1 H1 Growth £m £m % Revenue 425.1 409.6 +3.8% Gross profit 226.6 210.5 +7.6% Net operating expenses (164.6) (155.6) +5.8% Operating profit 62.0 54.9 +12.9% Operating profit % 14.6% 13.4% Net finance costs (1.1) (5.8) Profit before tax 60.9 49.1 +24.0% Basic EPS (pe

7. Slide 7: Balance Sheet

   Balance Sheet Step Change in Profitability and Inventory Drives Net Asset Growth H1 H1 FY 53 wks FY10 FY09 FY09 £m £m £m Fixed assets 362.4 371.0 367.0 Net working capital 28.0 51.4 64.7 Cash and borrowings (106.0) (174.0) (176.2) Creditors1 (30.5) (21.4) (11.1) Net assets 253.9 226.4 244.4 Inventor

8. Slide 8: Capital Expenditure Summary

   Capital Expenditure Summary Disciplined Capital Investment Centred on Portfolio and Multi-Channel FY10 H1 FY09 H1 FY09 FY £m £m £m New stores and re-sites 3.0 3.7 7.0 Store conversions and other store 1.3 2.6 3.8 Central Europe (incl. Systems development) 0.1 1.0 2.0 Total portfolio 4.4 7.3 12.8 Mul

9. Slide 9: Cash Flow and Net Debt – 12mth

   Cash Flow and Net Debt – 12mth Halfords remains strongly cash generative Operating cash flow Free cash flow Net debt1 £m £m £m Operating profit 98.8 Op. cash flow 154.0 Net debt 27.09.08 (174.0) Depreciation/Amortisation 25.1 Net finance costs (10.8) Free cash flow 115.0 Employee share scheme 2.6 Ta

10. Slide 10: Balance Sheet Flexibility

    Balance Sheet Flexibility Strong Balance Sheet Provides Capital Flexibility Debt : Structure & Profile  £180m term loan, repayment July 2011  £120m revolving credit facility FY10 FY09 Key Debt Metrics: Target times times  Adjusted net debt1/EBITDAR1 >3.9x 3.73 3.80  Fixed charge cover2 2.25x – 2

11. Slide 11: David Wild, Chief Executive Officer

    David Wild Chief Executive Officer

12. Slide 12: Agenda

    Agenda  Half Year Overview  Delivering Sustainable Earnings Growth  Strategic Growth Plan  Outlook  Summary 12 Halfords Group plc Interim Results – 19 November 2009

13. Slide 13: Half Year Overview

    Half Year Overview Foundation for Sustainable Earnings Growth  Strong earnings progression  Market share growth in core categories  Increased multi-channel sales participation  Margin improvement through active trading  Cost reduction programmes on plan  Operating cash flow at £112.3m leads to

14. Slide 14: Half Year Overview: Broadening Customer Base

    Half Year Overview Broadening Customer Base  Customer transactions up 3.2% year-on-year  Deepening our engagement with existing customers  Increasing ATV across core categories  New Ranges attracting more families  “wefit” and halfords.com encouraging more women to shop with us 14 Halfords Grou

15. Slide 15: What our family customers are buying from Halfords

    Half Year Overview What our family customers are buying from Halfords All customers Families Outdoor Leisure 5 3 Cycling 18 22 More products that In car entertainment and interest families 14 techonology 12 Child seats 7 3 % % of Halfords' visitors with children in household 37 33 33 More families %

16. Slide 16: International Markets: Republic of Ireland

    Half Year Overview International Markets Republic of Ireland  Macro economic position slow to recover  LFL: –18%  Q2 sales recovery driven by Halfords initiatives  Mixed category performances:  Child Travel +15%  Cycles +9%  In-car technology – 46%  Successful launch of Reserve and Collect 

17. Slide 17: International Markets: Central Europe

    Half Year Overview International Markets Central Europe  Czech and Polish economies still challenging  LFL: –12%  Variable LFL category performance:  Cycling +20%  Car maintenance consumables +14%  In-car technology – 52%  Seasonal campaigns and space allocation  Tight cost control  FY10 tr

18. Slide 18: Sustainable Earnings Growth

    Sustainable Earnings Growth Post IPO Earnings Growth 34.9%, 7.8% CAGR  Historic performance Earnings Per Share Growth 50 45 40 36.3  Attractive markets 35 30 26.6 29.3 32.5 Pence 24.1 23.6 25 20 15 10  Advantaged business model 5 0 FY05 FY06 FY07 FY08 FY09 FY10 Consensus Note:1. Earnings per shar

19. Slide 19: Sustainable Earnings Growth Derivations

    Sustainable Earnings Growth Halfords Markets Provide Long-Term Growth Potential Automotive Millions of cars 35 5-year car parc evolution  Expanding and ageing car parc 30 13+ years 25  Vehicle manufacturers innovation 10 to 12 years Manufacturer's Derivation Progression 2000 - 2008 20 250 7 to 9 y

20. Slide 20: Unique Business Model is Advantaged in its Core Markets

    Sustainable Earnings Growth Unique Business Model is Advantaged in its Core Markets  Unrivalled scale and national coverage  Market leading range, innovation and stock availability  Differentiated service proposition  Natural consolidator of fragmented markets  Strong brand provides foundation

21. Slide 21: Strategic Growth Plan

    Strategic Growth Plan Our Strategy Remains Consistent and on Plan  Investing in the Store Portfolio  Ongoing focus on cost control  Extending range and service advantage  Leveraging the Halfords brand in multi-channel 21 Halfords Group plc Interim Results – 19 November 2009

22. Slide 22: Investing in the Store Portfolio

    Investing in the Store Portfolio UK and RoI New Stores  7 stores opened in H1, shortage of quality retail development  50-60 remaining opportunities Existing Stores  Ongoing space rebalance programme  Releasing space for new initiatives  Improving space intensity  Updated layout and graphics C

23. Slide 23: Ongoing Cost Control

    Ongoing Cost Control Ongoing Programme to Reduce Operating Costs  Cost of Goods  Own label opportunities  Agile sourcing model  Specification advantage Operating Costs  Supply Chain - Lease signed on National Distribution Centre - £4m pa saving from mid – FY11  Payroll - Significant productiv

24. Slide 24: Service Advantage

    Service Advantage Halfords Service Proposition Achieves Multiple Objectives:  Grows sales and builds loyalty Halfords 3 Bs Fitting Penetration Rolling 12 mths 35 30  Defends market position 25 Penetration (%) 20 15 10 5  Highly economic - Weeks Blade Penetration % Bulb Penetration % Battery Penet

25. Slide 25: Multi Channel Development

    Multi Channel Development Current Visitors YOY 800,000  Multi channel sales +54% YOY 700,000 600,000 growth, 5% of total revenue No. Visitors 500,000 0910 400,000 0809 300,000 0708 200,000 100,000  Significantly lower than industry 0 1 5 9 13 17 21 25 29 33 37 41 45 49 53 benchmarks Week  80% of

26. Slide 26: Multi Channel Development

    Multi Channel Development Internal ambition to double participation Opportunity Range  Wider range in all key areas with low inventory risk  Order and Collect extends assortment in Jan 2010 Marketing  Drive to increase conversion further  Marketing spend increased by 80%  Ratings and reviews in

27. Slide 27: Outlook

    Outlook  Sales growth in Q3 to date in-line with internal expectations  Gross Margin trending in line with guidance  Ongoing Cost Control  Cautious regarding economic backdrop in early 2010  Full year Operating Profits in-line with market expectation 2010 Uncertain consumer environment, but Hal

28. Slide 28: Summary

    Summary Foundation for long-term sustainable earnings growth  Good first half performance providing foundation for the full year and beyond  Cost saving programmes on track  Multi channel development continues to expand and deliver profitable sales  Ongoing acceptance and take up of the service

29. Slide 29: Appendices

    Appendices 1. H1 Cash Flow 2. Portfolio by Store Type 3. Portfolio by Location 4. Tottenham Store Visit

30. Slide 30: Cash Flow and Net Debt – H1

    Cash Flow and Net Debt – H1 Operating cash flow Free cash flow Net debt1 £m £m £m Operating profit 62.0 Op. cash flow 112.3 Net debt 03.04.09 (176.2) Depreciation/Amortisation 11.5 Net finance costs (1.4) Free cash flow 96.6 Employee share scheme 1.6 Taxation (12.5) Dividends (22.8) Asset gains and

31. Slide 31: Portfolio By Store Type

    Portfolio By Store Type Retail Space 3,904,624 ft2 Mezzanine Flat Compact Metro Bikehut Total SM/M F C Me BH Opening Number 239 162 29 28 8 466 New Store 0 2 4 0 0 6 Relocations 1 (1) 0 0 0 0 Closures 0 0 0 (2) (1) (3) Conversions 0 0 0 5 (5) 0 Closing Number 240 163 33 31 2 469 09/10 store rollout

32. Slide 32: Portfolio by Type and Location

    Portfolio by Type and Location UK RoI Poland CZ Total Superstore 376 21 1 5 403 Mezzanine 227 12 0 1 240 Flat 149 9 1 4 163 Neighbourhood 31 2 0 0 33 Metro 31 0 0 0 31 Bikehut 2 0 0 0 2 Total 440 23 1 5 469 UK RoI Poland CZ Total Opening Number 438 22 1 5 466 New stores 6 1 0 0 7 Closed stores (4) 0

33. Slide 33: Investor Store Visit – 8th October 2009

    HALFORDS GROUP PLC INVESTOR STORE VISIT – 8th OCTOBER 2009 Halfords Unit 6 Broadground Lane Tottenham N15 4QD 33 Halfords Group plc Interim Results – 19 November 2009

34. Slide 34: Strategic Growth Plan

    Strategic Growth Plan Core UK business provides continued growth opportunities  Extending range and service advantage  Investing in the Store Portfolio  Ongoing focus on cost control  Leveraging the Halfords brand in multi-channel 34 Halfords Group plc Interim Results – 19 November 2009

35. Slide 35: Overview

    Overview To illustrate the growth potential for Halfords core UK category proposition  Introduction  Automotive  Leisure  Colleague Management  Summary  Open Session 35 Halfords Group plc Interim Results – 19 November 2009

36. Slide 36: Car Maintenance

    Car Maintenance  Long term attractive market  Increasing car parc  Ageing car parc positive for demand  Manufacturer innovation  Attractive economic model  Above average gross margins  Range innovation drives ATV  Range now actively marketed  Market leader through range authority, availabil

37. Slide 37: Car Enhancement

    Car Enhancement  Wide ranging category from resilient car cleaning staples to accessories & technology  Market drivers  Cleaning & accessories mirror car parc  On-going innovation drives technology market  Advantaged proposition  Strong own brand  Scale & flexible sourcing  Range breadth and

38. Slide 38: Cycles

    Cycles  Long term attractive market  Health/leisure  Sustainability  Economy/commuting  Market leadership with further opportunities  Significantly advantaged proposition  Own brand led assortment  In-store service  Comprehensive accessory range & increasing attachment rates  Scale & agile

39. Slide 39: Premium Cycle Opportunity

    Premium Cycle Opportunity  Boardman fastest growing premium bike brand  „Best in Class‟ Awards  Long term exclusive arrangement  Leverages supply chain capability to offer great value  Volume 3 x 2008 levels, 5 times Halfords average ATV  Trained colleagues  Leverage Boardman to widen premium

40. Slide 40: Travel Solutions / Camping

    Travel Solutions / Camping  Market dynamics underpinned by growth in domestic holidays  Market leadership in established auto related categories  Roof boxes, bars and cycle carriers  Pets on the Move, Safety & Continental Motoring  Increasingly diversified into camping  Sub-shop environment im

41. Slide 41: Labour Productivity Management

    Labour Productivity Management  Objectives  Optimise colleague & skill allocation across store/week  Deliver payback on eVolve systems investment  Offset inflationary pressures  Increase fitting resource & availability  Progress – Financial Year 09  Develop core rotas  Gap identification pro

42. Slide 42: Summary

    Summary Unique offer and differentiated service proposition  Natural destination for Automotive & Leisure products  Core categories provide growth opportunities, in-store and via halfords.com  Broad competitive set with Halfords delivering market leading package  Consolidation opportunity in fra

43. Slide 43: Appendix – Tottenham Store

    Appendix – Tottenham Store Tottenham Store is representative of the Halfords estate Physical  Opened 8 December 2000  Square mezzanine store (c. 100 in chain)  Retail space (sq ft) - ground 8,639, mezzanine 2,703 (Rental space – 12,000)  Low cost refresh 2007 (£30k investment) Financial  Turnov

Halfords Group — H1 FY2010 Earnings Presentation on 6ix